UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the period ended January 31, 1994
Commission File Number 1-7891
DONALDSON COMPANY, INC.
(Exact name of registrant as specified in its charter)
Delaware 41-0222640
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1400 West 94th Street
Minneapolis, Minnesota 55431
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code (612) 887-3131
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, $5 Par Value -- 13,529,176 shares as of February 28, 1994
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
CONDENSED STATEMENTS OF CONSOLIDATED EARNINGS
DONALDSON COMPANY, INC. AND SUBSIDIARIES
(Thousands of Dollars Except Per Share Amounts)
(Unaudited)
Three Months Ended Six Months Ended
January 31 January 31
1994 1993 1994 1993
Net Sales $135,577 $125,047 $278,095 $250,725
Cost of Sales 97,673 91,515 199,655 180,993
Gross Margin 37,904 33,532 78,440 69,732
Operating Expenses 28,155 25,896 55,836 51,139
Other (Income) (844) (1,283) (770) (1,136)
Interest Expense 788 806 1,471 1,592
Earnings Before Income Taxes 9,805 8,113 21,903 18,137
Income Taxes 3,567 2,891 8,104 6,620
Earnings Before Cumulative Effect
of Accounting Change 6,238 5,222 13,799 11,517
Cumulative Effect of Accounting
Change - - 2,206 -
Net Earnings $ 6,238 $ 5,222 $ 16,005 $ 11,517
Average Shares and
Equivalents Outstanding
During Period 27,370,880 28,005,670 27,377,772 27,961,156
Earnings Per Share Before Cumulative
Effect of Accounting Change $ .23 $ .19 $ .50 $ .41
Cumulative Effect of Accounting
Change - - .08 -
Net Earnings per Share $ .23 $ .19 $ .58 $ .41
Dividends Paid Per Share $ .06 $ .05 $ .12 $ .10
See Notes to Condensed Consolidated Financial Statements.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
DONALDSON COMPANY, INC. AND SUBSIDIARIES
(Thousands of Dollars)
(Unaudited)
January 31, July 31,
1994 1993
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 31,677 $ 32,110
Accounts Receivable, Net 103,953 103,320
Inventories
Materials 22,741 23,248
Work in Process 7,449 7,615
Finished Products 17,669 18,062
Total Inventories 47,859 48,925
Other 10,193 11,659
TOTAL CURRENT ASSETS 193,682 196,014
Property, Plant and Equipment, at Cost 239,098 233,847
Less Accumulated Depreciation 147,059 143,332
Property, Plant and Equipment, Net 92,039 90,515
Other Assets 14,795 13,688
TOTAL ASSETS $300,516 $300,217
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-Term Debt $ 7,511 $ 4,238
Current Maturities of Long-Term Debt 2,798 3,357
Trade Accounts Payable 34,156 38,235
Accrued Employee Compensation & Related Taxes 15,165 16,799
Other Current Liabilities 30,206 31,037
TOTAL CURRENT LIABILITIES 89,836 93,666
Long-Term Debt 18,585 18,920
Deferred Income Taxes 404 2,060
Other Long-Term Liabilities 11,810 11,563
SHAREHOLDERS' EQUITY
Preferred Stock, $1 par value,
1,000,000 shares authorized, no shares issued - -
Common Stock, $5 par value, 40,000,000 shares
authorized, 27,041,086 and 13,927,274 issued
on January 31, 1994 and July 31, 1993 135,205 69,636
Capital Surplus - 1,284
Retained Earnings 50,952 117,293
Cumulative Translation Adjustment 3,699 5,646
Treasury Stock - 286,205 shares in 1993
at cost - (9,876)
Receivable from ESOP (9,975) (9,975)
TOTAL SHAREHOLDERS' EQUITY 179,881 174,008
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $300,516 $300,217
See Notes to Condensed Consolidated Financial Statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
DONALDSON COMPANY, INC. AND SUBSIDIARIES
(Thousands of Dollars)
(Unaudited)
Six Months Ended
January 31
1994 1993
OPERATING ACTIVITIES
Net Earnings $ 16,005 $ 11,517
Adjustments to Reconcile Net Earnings to
Net Cash Provided by Operating Activities:
Depreciation and Amortization 7,761 7,385
Cumulative Effect of Accounting Change (2,206) -
Changes in Operating Assets and Liabilities (5,206) 1,718
Other (2,973) (1,653)
13,381 18,967
INVESTING ACTIVITIES
Net Expenditures on PP&E (9,256) (7,215)
Business Acquisitions, Net of Cash Acquired - (7,618)
Business Held for Sale - (2,782)
Dividends from Affiliate 2,050 3,000
(7,206) (14,615)
FINANCING ACTIVITIES
Debt Increase (Decrease) 2,633 (4,512)
Dividends Paid (2,989) (2,768)
Purchase of Treasury Stock (5,600) (28)
Stock Options 403 (3,264)
(5,553) (10,572)
Effect of Exchange Rate Changes on Cash (1,055) 235
DECREASE IN CASH AND CASH EQUIVALENTS (433) (5,985)
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 32,110 31,096
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 31,677 $ 25,111
See Notes to Condensed Consolidated Financial Statements.
Note A - The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01
of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation
have been included.
Note B - Change in Method of Accounting for Income Taxes
Effective August 1, 1993, the Company changed its method of
accounting for income taxes to comply with Financial Accounting
Standards Board Statement No. 109, "Accounting for Income Taxes"
(FAS 109). The new Statement requires a liability approach for
computing income taxes. As permitted under the new Statement,
prior years' financial statements have not been restated. The
cumulative effect of adopting FAS 109 was to increase net
earnings by $2.2 million (8 cents per share).
Significant components of deferred tax assets and
liabilities at August 1, 1993 were as follows: (Thousands of
Dollars)
Deferred Tax Assets:
Compensation and Retirement Plans $ 5,071
Accrued Expenses 3,730
Tax Loss and Tax Credit Carryforwards 855
Other 2,704
Gross Deferred Tax Assets 12,360
Deferred Tax Liabilities:
Depreciation and Amortization (4,261)
Other (3,396)
Gross Deferred Tax Liabilities (7,657)
Net Deferred Tax Assets $ 4,703
Note C - A two-for-one stock split effected in the form of a 100
percent stock dividend was declared by the Board of Directors on
January 21, 1994 to shareholders of record on March 16, 1994.
This split will result in the issuance of additional shares of
Common Stock and the reissuance of shares of Common Stock held in
treasury. All per share and certain share amounts have been
adjusted to reflect the stock split.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
A. Financial Condition
Cash flow in the second quarter was a negative $0.1 million.
Net earnings, adjusted for the cumulative effect of the
accounting change, plus depreciation, fully funded the Company's
capital expenditures, dividends and stock repurchases in the
quarter.
Working capital, excluding cash, increased $2.2 million in
the quarter. The increase was primarily related to a decrease in
income taxes payable. Accounts receivable and inventories were
basically unchanged during the period.
Capital expenditures of $5.1 million in the quarter and $9.3
million year-to-date are within the Company's 1994 capital
expenditure budget of $20.0 million.
In the second quarter, the Company repurchased 93,200 pre-
split shares at a cost of $3.8 million, or $41.20 per share. The
Company currently has Board authorization to repurchase an
additional 818,200 shares (on a pre-split basis).
At the end of the second quarter, the Company had $31.7
million of cash and cash equivalents, $28.9 million of total
debt, and a capitalization ratio of 13.8 percent, up from 12.7
percent as of the end of the first quarter. Debt increased in
Europe in the second quarter as the Company's Belgian
Coordination Center borrowed to factor additional European
receivables.
The Company believes that operational cash flows should
continue to adequately fund long-term capital needs, but external
funds will be used as necessary.
B. Results of Operations
Second quarter sales of $135.6 million were up 8 percent
from prior year sales of $125.0 million. Net earnings of $6.2
million were up 19 percent from prior year net earnings of $5.2
million. Earnings per share, restated for the two-for-one stock
split declared on January 21st, of 23 cents were up 21 percent
from 19 cents per share the prior year.
For the six-month period, sales of $278.1 million were up 11
percent from prior year sales of $250.7 million. Before the
cumulative effect of the accounting change, earnings of $13.8
million were up 20 percent from prior year earnings of $11.5
million. Restated for the stock split, earnings per share of 50
cents were up 22 percent compared to 41 cents per share the prior
year.
In the first quarter, the Company adopted Financial
Accounting Standards Board (FASB) Statement No. 109, "Accounting
for Income Taxes," which increased earnings by $2.2 million, or 8
cents per share. As a result, net earnings for the six-month
period were $16.0 million, or 58 cents per share.
Worldwide sales by market for the second quarter were as
follows:
($Millions) 1994 1993 % Change
OEM $ 63.7 $ 56.0 13.8%
Aftermarket 19.8 17.3 14.5
Defense 3.7 5.1 (27.5)
Exhaust Filtration 2.0 2.7 (25.9)
Engine Products $ 89.2 $ 81.1 10.0%
Dust Collection $ 21.0 $ 21.0 - %
Gas Turbine Filtration 14.4 13.5 6.7
High Purity Products 11.0 9.4 17.0
Industrial Products $ 46.4 $ 43.9 5.7%
Net Sales $135.6 $125.0 8.5%
In Engine Products, domestic OEM and aftermarket sales were
up 21 percent and 19 percent, respectively. As expected, defense
sales are down from the prior year, but both sales and backlogs
have plateaued at current levels. The Company completed the
final shipments of diesel particulate traps in the second
quarter.
In Industrial Products, domestic dust collection sales were
up 9 percent while overseas sales declined 22 percent due to the
continued economic weakness in Germany and Japan. Gas turbine
systems overseas sales were up 33 percent in the quarter.
Domestic high purity products sales were up 30 percent due to
increased VOC abator sales and the additional revenues from ENV
Services, Inc., the service company acquired at the end of the
second quarter of last year.
Second quarter gross margins of 28.0 percent were up from
last year's margins of 26.8 percent as margins improved for all
of the Company's businesses.
Operating expenses as a percent of sales in the quarter
increased year-over-year from 20.7 percent to 20.8 percent. This
year's results, however, included the recognition of warranty
reserves for the diesel particulate trap in excess of those
recorded last year. Excluding those additional reserves,
operating expenses would have been 20.1 percent of sales in the
second quarter.
Other income and interest expense were basically unchanged
from the prior year. The Company's effective income tax rate
increased from 35.6 percent last year to 36.4 percent this year,
which reflects the 1.0 percent increase in the U.S. statutory
income tax rate.
Though still facing difficult operating conditions, Brazil's
operating losses in the second quarter were less than the prior
year and should continue to improve on a comparable basis in the
second half of the year.
Total backlogs of $145.3 million were up 14 percent from the
same period last year and 5 percent from the end of the first
quarter. Hard order backlogs -- goods scheduled for delivery in
90 days -- of $95.8 million were up 14 percent from last year and
10 percent from the end of the first quarter.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Shareholders of Registrant was
held on November 19, 1993. A total of 13,595,798
shares were outstanding and entitled to vote at the
meeting.
(b) Not Applicable.
(c) Of the total outstanding, 1,591,651 shares were general
abstentions and broker nonvotes resulting in a
shareholder vote as follows:
(i) Election of Directors:
Name of Nominee Vote Tabulation
For Withheld
A. Gary Ames 11,561,859 442,288
S. Walter Richey 11,722,553 281,594
Preston Townley 11,705,191 298,956
(ii) Ratified selection of Ernst & Young as
Registrant's independent public auditors for the
fiscal year ending July 31, 1994 with the
following vote: For - 11,925,848; Against -
41,034; Abstaining - 37,265.
(d) Not Applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit Index
None
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter
ended January 31, 1994.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
DONALDSON COMPANY, INC.
(Registrant)
Date 3/14/94 By /s/Thomas A. Windfeldt
Thomas A. Windfeldt
Vice President -
Corporate Controller
(Chief Accounting Officer)
Date 3/14/94 By /s/Raymond F. Vodovnik
Raymond F. Vodovnik
Vice President-Law and Secretary
